The rout in junior resource stocks continues…
The Toronto’s Venture Exchange is home to over 1,700 small resource companies. These stocks are capable of incredible, hundreds-of-percent booms… and brutal, 75%-plus busts.
I spend hours each week poring over information on junior stocks, trying to sleuth out the best… And I’ve learned one critical fact over the years: When the overall trend is bearish, it doesn’t matter how good the company is or how great the deposit.
[ad#Google Adsense 336×280-IA]In the end, they all bust.And right now, the overall trend is bearish…
From 2009 to 2011, the Venture Exchange Index boomed, rising more than 250%.
After its 2011 peak, it busted back down 45%.
It hit bottom in October… and looked like it was reversing course…
By this past January, the Venture had climbed back over its 120-day moving average (DMA).
By plotting this indicator, we filter out market volatility so we can gauge the general trend. When the market is trading above its 120-DMA, we consider it to be in a bull trend. When it trades below its 120-DMA, we consider it to be in a bear trend.
And by late last month, we were back into “bear trend” territory. Now, the Venture is stretching toward its October low, another major bearish milestone. Take a look…
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Keep in mind: there’s nothing “magic” about the 120-DMA indicator… or the October low. They simply give us a rough idea of which way the “trend wind” is blowing. And right now, junior resource investors are facing a major headwind.
While I’m a long-term bull on commodities and commodity stocks, I also never want to fight against a huge downtrend in any market. When a big trend heads lower, no stock – no matter how good its assets or management are – will do well.
That’s why it’s best to stay extremely conservative toward speculative resource stocks right now. The trend could turn higher in a week or two. It could turn higher in six months. We can’t know for sure. By waiting for a bit of price strength here before buying, we’ll avoid big losses if the downtrend continues.
Good investing,
–Matt Badiali
[ad#jack p.s.]Source: The Growth Stock Wire
